Although the U.S. House of Representatives passed a bill that would have extended the federal estate tax and the $3,500,000 exemption, the U.S. Senate ran out of time and did not address the repeal of the federal estate tax before December 31, 2010. Therefore, the repeal of the federal estate tax will become effective on January 1, 2010.

During the period that the federal estate tax is repealed, a complicated capital gains tax regime will apply to transfers at death. If Congress does not act, the federal estate will remain repealed throughout 2010.

Unless Congress acts sooner, the federal estate tax will be automatically reinstated on January 1, 2011. Amounts over $1,000,000 will be subject to tax rates up to 55%.

Various members of Congress have expressed a desire to address the federal estate tax in 2010 when the legislature reconvenes. It is possible that Congress may try to make changes which apply retroactively back to January 1, 2010. Only time will tell. Look for a follow-up Hinshaw Client Alert in early 2010, which will outline developments and offer suggestions regarding possible courses of conduct during these turbulent times.

For further information, please contact Stephen A. Frost or your regular Hinshaw attorney.